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Time to heed lessons learned from economic crisis, says Helmy

CAIRO: The Egyptian economy has arrived at a critical juncture, said Taher Helmy, leading lawyer, partner at the law firm Baker &amp; McKenzie and chairman of the Egyptian Center for Economic Studies. A year after the onset of the global economic crisis, this is an important moment for Egypt, he said. He’s hopeful that the …

CAIRO: The Egyptian economy has arrived at a critical juncture, said Taher Helmy, leading lawyer, partner at the law firm Baker &amp; McKenzie and chairman of the Egyptian Center for Economic Studies.

A year after the onset of the global economic crisis, this is an important moment for Egypt, he said. He’s hopeful that the Egyptian government will make a set of decisions that will put the country back on the path to long-term prosperity.

At root, Helmy believes that Egypt skillfully avoided the worst of the global economic crisis, but as the country increases its engagement with the global economy, it must be careful to do so in a way that brings prosperity but excludes the sort of irresponsible economic practices that plunged the world into crisis a year ago.

For two reasons, Helmy believes, the Egyptian economy survived the worst of the economic crisis that shook the markets of so many developed economies.

First, he said, the government had made real progress with sound monetary policy and the reform of the financial sector including a concerted effort to fill the upper ranks of the banking system with executives from the private sector. This quality government policy has brought reform and general stability to the economic system, he said.

Second, the Egyptian economy had not matured enough that it had begun dealing with the sort of products that instigated the economic crisis which began in the US and Europe.

“Our securities market and our capital market had not reached the kind of sophistication that we saw around the world, Helmy said.

It is because of these two factors, according to Helmy, that Egypt suffered only an “indirect hit, feeling primarily a slowdown in foreign investment, tourism, exports, etc. instead of the burden of a full-blown direct hit to the financial sector.

This is a critical moment for Egypt, he said, because the country is still determined to carry out its reform program and engage more fully with the global economy. The challenge, though, is that the global economy is in a transformative period, so it’s important to know what exactly Egypt is engaging with in the post-financial crisis.

“Will the US dollar remain the reserve currency of the world? Will it remain the strongest currency in the world? Will the US market remain still the prime market for the world to export to? Helmy asks rhetorically.

Helmy’s concern is that Egypt may be in too much of a rush to pick up where it left off and that it will begin to deal with some of the capital market products like hedge funds and derivatives, which plunged the developed economies into crisis.

“The first question is do we have the adequate regulatory framework in place today that could protect us from such problems in the future? he asks.

And Helmy doesn’t seem sure if there is an adequate regulatory framework.

He believes that Egypt needs to use this moment to catch its breath, making sure that not only are the right regulations in place, but also that the proper enforcement institutions are ready to deal with the challenges of the market economy. Only then, he said, should Egypt cautiously proceed forward in engaging with sophisticated products.

“If we think today of instituting or introducing derivatives, futures contracts, hedge funds to the market, then definitely we need much stronger regulations than we had anticipated, we need to learn from the lessons of the financial crisis, he said.

Helmy comes across as something of a scholar, posing as many questions as he answers. He says that looking into how other economies, outside of the US and Europe, handled the crisis, and what sort of regulatory framework they have and will be implementing, will be critical to Egypt’s own future success.

The Great Depression, he noted, brought about the Securities Act of 1933 followed by a slew of other acts and legislations that set the course for the global economy for years to come. The most recent financial turmoil, the worst since the Great Depression, will also bring about important legislative changes, Helmy said, and Egypt needs to pay close attention and heed the lessons learned from the crisis.

He also has something of a populist streak, referring frequently and passionately about what’s best for the public and how the government ought to interact with the public.

“In the legislative and especially in the institutional framework, we have to reexamine our existing legal structure to make sure that even within the confines of what the market allows today, the public is protected, he said.

Though Helmy stops short of criticizing the government, he does suggest that its main shortcoming, with regard to its economic reform program has been its inability to adequately explain its policies to the public.

He talks about the end of the privatization program and said it was an important program, adding that the government should have done a more credible job explaining to a skeptical public.

“Public acceptability of the privatization program is essential.

And Helmy takes his argument a step further, saying that the government’s inability to properly communicate its economic reform policies has led to a deficit in public will, which, in turn, has hurt the government’s ability to forge ahead with reforms.

“Another issue that has become relevant today is that public opinion has become strong enough that it is affecting the decision making process, and it is affecting the economic reform program, he said.

“Clear and transparent communication with the public about why decisions are made will be central, going forward, to the government’s ability to further enact reforms.

And reform, he believes, is a must for an economy that needs to grow 7 to 8 percent a year to stay afloat and provide the much needed jobs for the approximately 700,000 new entrants to the labor market annually.

“Reform has to continue in a very serious and strong way, he said, “and that’s where I believe we need to improve, whether it is legislative, institutional or judicial.

Egypt, he says, has skillfully navigated tough economic waters over the past year. It must however learn lessons from the failures of others if the coming years are to be as successful.